Sapiens Reports First Quarter 2021 Financial Results

May 4, 2021 8:04 AM EDT

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HOLON, Israel, May 4, 2021 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, today announced its financial results for the first quarter ended March 31, 2021.

Sapiens International Corporation Logo

 

Summary Results for First Quarter 2021 (USD in millions, except per share data)

GAAP

Non-GAAP

Q1 2021

Q1 2020

% Change

Q1 2021

Q1 2020

% Change

Revenue

$109.6

$90.5

21.1%

$110.2

$90.5

21.7%

Gross Profit

$44.3

$36.3

22.0%

$49.2

$39.8

23.7%

Gross Margin

40.4%

40.1%

 30 bps

44.7%

44.0%

 70 bps

Operating Income

$12.4

$10.3

20.3%

$19.0

$14.6

30.0 %

Operating Margin

11.3%

11.4%

 (10) bps

17.2%

16.1%

 110 bps

Net Income (*)

$9.8

$6.8

44.2%

$14.9

$10.4

43.2%

Diluted EPS

$0.18

$0.13

38.5%

$0.27

$0.20

35.0%

(*) Attributable to Sapiens' shareholders.

"Our revenue growth in the first quarter validates our strategy of building global diversity with a broad business portfolio, which provides the foundation for Sapiens' performance and growth. Solid execution in the first quarter delivered 22% non-GAAP revenue growth, with non-GAAP revenues reaching a record $110 million and non-GAAP operating margin increasing to 17.2% from 16.1%. Our growth in the first quarter originated primarily from Europe and Rest-of-the-World. Operating a global company across multiple insurance markets and deploying a diversified product offering allows us to balance our growth, resources, investments, and risks across regions and markets. With a strategic focus and the increasing global market demand for digital insurance solutions and transformations, Sapiens is well positioned for continued financial performance," said Roni Al-Dor, Sapiens president and CEO.

"We are increasing our 2021 revenue guidance to a range of $459 to $464 million from our prior range of $457 to $463 million. We are also updating our operating profit margin guidance, due to our plan initiated this quarter to manage our growth and investment in delivery capabilities in the North American P&C CoreSuite business, and following the recent spike in COVID-19 in India, which will increase our labor costs in the short term. As a result of these two factors, operating margin in 2021 is expected to be in the range of 17.0% to 17.4%, compared to the previous range of 17.7% to 18.0%. I would like to highlight that Sapiens remains committed to increasing its profitability and margins, as we have done year after year."

 Quarterly Results Conference CallManagement will host a conference call and webcast today, May 4, 2021 at 9:30 a.m. Eastern Time (4:30 p.m. in Israel) to review and discuss Sapiens' results.

Please call the following numbers (at least 10 minutes before the scheduled time) to participate:

North America (toll-free): + 1-888- 642-5032; International: +972-3-918-0609; UK: 0-800-917-5108.

The live webcast of the call can be accessed on Sapiens' website at https://www.sapiens.com/investor-relations/ir-events-presentations/. A replay of the call will be available one business day following the completion of the event at the same location for 90 days.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP operating income, non-GAAP net income attributed to Sapiens shareholders, non-GAAP basic and diluted earnings per share, Adjusted EBITDA and Adjusted Free Cash-Flow.

Sapiens believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Sapiens' financial condition and results of operations. The Company's management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. These measures are used in financial reports prepared for management and in quarterly financial reports presented to the Company's board of directors. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing the Company's financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude: Valuation adjustment on acquired deferred revenue, amortization of capitalized software development and other intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, and tax adjustments related to non-GAAP adjustments.

Management of the Company does not consider these non-GAAP measures in isolation, or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. In addition, they are subject to inherent limitations, as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures.

To compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. Sapiens urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company's business.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables of this release.

The Company defines Adjusted EBITDA as net profit, adjusted for valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalized of software development costs, compensation expenses related to acquisition and acquisition-related costs, restructuring and cost reduction costs, financial expense (income), provision for income taxes and other income (expenses). These amounts are often excluded by other companies to help investors understand the operational performance of their business.

The Company uses Adjusted EBITDA as a measurement of its operating performance, because it assists in comparing the operating performance on a consistent basis by removing the impact of certain non-cash and non-operating items. Adjusted EBITDA reflects an additional way of viewing aspects of the operations that the Company believes, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting its business. The Company uses Adjusted Free Cash-Flow as a measurement of its operating performance, and reconciles cash-flow from operating activities to Adjusted Free Cash-Flow, while reducing the amounts for capitalization of software development costs and capital expenditures. The Company adds back cash payments made for former acquisitions in respect of future performance targets and retention criteria as determined upon acquisition date of the respective acquired company, which were included in the cash-flow from operating activities. We believe that Adjusted Free Cash-Flow is useful in evaluating our business, because Adjusted Free Cash-Flow reflects the cash surplus available to fund the expansion of our business.

About Sapiens

Sapiens International Corporation empowers insurers to succeed in an evolving industry. The company offers digital software platforms, solutions and services for the property and casualty, life, pension and annuity, reinsurance, financial and compliance, workers' compensation and financial markets. With more than 35 years of experience delivering to more than 600 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. For more information: www.sapiens.com.

Forward Looking Statements

Certain matters discussed in this press release that are incorporated herein and therein by reference are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our beliefs, assumptions and expectations, as well as information currently available to us. Such forward-looking statements may be identified by the use of the words "anticipate," "believe," "estimate," "expect," "may," "will," "plan" and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: the COVID-19 (coronavirus) pandemic, which may last longer than expected and materially adversely affect our results of operations; the degree of our success in our plans to leverage our global footprint to grow our sales; the degree of our success in integrating the companies that we have acquired through the implementation of our M&A growth strategy; the lengthy development cycles for our solutions, which may frustrate our ability to realize revenues and/or profits from our potential new solutions; our lengthy and complex sales cycles, which do not always result in the realization of revenues; the degree of our success in retaining our existing customers or competing effectively for greater market share; difficulties in successfully planning and managing changes in the size of our operations; the frequency of the long-term, large, complex projects that we perform that involve complex estimates of project costs and profit margins, which sometimes change mid-stream; the challenges and potential liability that heightened privacy laws and regulations pose to our business; occasional disputes with clients, which may adversely impact our results of operations and our reputation; various intellectual property issues related to our business; potential unanticipated product vulnerabilities or cybersecurity breaches of our or our customers' systems; risks related to the insurance industry in which our clients operate; risks associated with our global sales and operations, such as changes in regulatory requirements, wide-spread viruses and epidemics like the recent novel coronavirus outbreak, or fluctuations in currency exchange rates; and risks related to our principal location in Israel and our status as a Cayman Islands company.

While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the risks discussed under the heading "Risk Factors" in our most recent Annual Report on Form 20-F, in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, to conform these statements to actual results or to changes in our expectations.

Investors and Media ContactSapiensDaphna GoldenVice President, Head of Investor Relations Email: ir@sapiens.com 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES                   

CONDENSED CONSOLIDATED STATEMENTS OF INCOME                 

U.S. dollars in thousands (except per share amounts)

  Three months ended

 March 31,

2021

2020

(unaudited)

 (unaudited)

 Revenue

109,592

90,534

 Cost of revenue

65,336

54,270

 Gross profit

44,256

36,264

 Operating expenses:

 Research and development, net

13,088

10,526

 Selling, marketing, general and administrative

18,803

15,460

 Total operating expenses

31,891

25,986

 Operating income

12,365

10,278

 Financial and other expenses, net

515

1,487

 Taxes on income

1,948

1,901

 Net income

9,902

6,890

 Attributed to non-controlling interest

67

70

 Net income attributable to Sapiens' shareholders

9,835

6,820

 

 

 

Basic earnings per share

0.18

0.14

 Diluted earnings per share

0.18

0.13

 Weighted average number of shares outstanding used

  to compute basic earnings per share (in thousands)

54,689

50,175

 Weighted average number of shares outstanding used

 to compute diluted earnings per share (in thousands)

55,567

51,083

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED NON-GAAP STATEMENTS OF INCOME

U.S. dollars in thousands (except per share amounts)

  Three months ended

March 31,

2021

2020

(unaudited)

 (unaudited)

 Revenue

110,222

90,534

 Cost of revenue

60,993

50,743

 Gross profit

49,229

39,791

 Operating expenses:

 Research and development, net

14,720

11,963

 Selling, marketing, general and administrative

15,509

13,214

 Total operating expenses

30,229

25,177

 Operating income

19,000

14,614

 Financial and other expenses, net

515

1,487

 Taxes on income

3,510

2,645

 Net income

14,975

10,482

 Attributable to non-controlling interest

67

70

 Net income attributable to Sapiens' shareholders

14,908

10,412

 Basic earnings per share

0.27

0.21

 Diluted earnings per share

0.27

0.20

Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)

54,689

50,175

Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)

55,567

51,083

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND SUBSIDIARIES 

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

U.S. dollars in thousands (except per share amounts)

Three months ended

March 31,

2021

2020

(unaudited)

(unaudited)

GAAP revenue

109,592

90,534

Valuation adjustment on acquired deferred revenue

630

-

Non-GAAP revenue

110,222

90,534

GAAP gross profit

44,256

36,264

Revenue adjustment

630

-

Amortization of capitalized software

1,784

1,496

Amortization of other intangible assets

2,559

2,031

Non-GAAP gross profit

49,229

39,791

GAAP operating income

12,365

10,278

Gross profit adjustments

4,973

3,527

Capitalization of software development

(1,632)

(1,437)

Amortization of other intangible assets

1,366

589

Stock-based compensation

1,399

622

Acquisition-related costs *)

529

1,035

Non-GAAP operating income

19,000

14,614

  GAAP net income attributable to Sapiens' shareholders

9,835

6,820

  Operating income adjustments

6,635

4,336

  Taxes on income

(1,562)

(744)

  Non-GAAP net income attributable to Sapiens'   shareholders

14,908

10,412

(*) Acquisition-related costs pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

Summary of NON-GAAP Financial Information 

U.S. dollars in thousands (except per share amounts)

Q1 2021

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Revenues

110,222

102,936

97,968

93,063

90,534

Gross profit

49,229

47,044

44,206

41,900

39,791

Operating income

19,000

18,666

17,859

16,783

14,614

Net income to Sapiens' shareholders

14,908

14,461

13,746

13,340

10,412

Adjusted EBITDA

20,120

20,032

19,010

17,854

15,724

Basic earnings per share

0.27

0.27

0.27

0.27

0.21

Diluted earnings per share

0.27

0.27

0.27

0.26

0.20

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands

Q1 2021

Q4 2020

Q3 2020

Q2 2020

Q1 2020

North America

44,754

47,303

49,979

46,610

44,567

Europe

57,642

49,225

42,394

41,030

40,232

Rest of the world

7,826

6,408

5,595

5,423

5,735

Total

110,222

102,936

97,968

93,063

90,534

Adjusted Free Cash-Flow

U.S. dollars in thousands

Q1 2021

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Cash-flow from operating activities

11,755

21,030

16,705

14,761

5,759

Increase in capitalized software development costs

(1,632)

(1,604)

(1,506)

(1,251)

(1,437)

Capital expenditures

(821)

(725)

(963)

(393)

(552)

Free cash-flow

9,302

18,701

14,236

13,117

3,770

Cash payments attributed to acquisition-related costs(*) (**)

1,280

2,363

242

1,562

737

Adjusted free cash-flow

10,582

21,064

14,478

14,679

4,507

(*) Included in cash-flow from operating activities

(**) Acquisition-related payments pertain to payments on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

Adjusted EBITDA Calculation 

U.S. dollars in thousands

Three months ended

 March 31,

2021

2020

(unaudited)

(unaudited)

GAAP operating income

12,365

10,278

Non-GAAP adjustments:

Valuation adjustment on acquired deferred revenue

630

-

Amortization of capitalized software

1,784

1,496

Amortization of other intangible assets

3,925

2,620

Capitalization of software development

(1,632)

(1,437)

Stock-based compensation

1,399

622

Compensation related to acquisition and acquisition-related costs

529

1,035

Non-GAAP operating income

19,000

14,614

Depreciation

1,120

1,110

Adjusted EBITDA

20,120

15,724

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

March 31,

December 31,

2021

2020

 (unaudited)

 (unaudited)

 ASSETS

 CURRENT ASSETS

Cash and cash equivalents

142,184

152,561

Short-term bank deposit

30,000

30,000

Trade receivables, net and unbilled receivables

74,762

65,409

Other receivables and prepaid expenses

16,494

19,388

Total current assets

263,440

267,358

 LONG-TERM ASSETS

Property and equipment, net

16,585

16,970

Severance pay fund

6,604

6,582

Goodwill and intangible assets, net

352,130

363,597

Operating lease right-of-use assets

51,716

54,390

Other long-term assets

6,078

5,264

Total long-term assets

433,113

446,803

 TOTAL ASSETS

696,553

714,161

LIABILITIES AND EQUITY

 CURRENT LIABILITIES

Trade payables

6,057

5,389

Current maturities of Series B Debentures

19,796

19,796

Accrued expenses and other liabilities

68,750

75,119

Current maturities of operating lease liabilities

10,719

9,924

Deferred revenue

41,470

34,548

Total current liabilities

146,792

144,776

 LONG-TERM LIABILITIES

Series B Debentures, net of current maturities

78,906

98,676

Deferred tax liabilities

14,704

16,010

Other long-term liabilities

13,037

12,129

Long-term operating lease liabilities

46,531

48,773

Redeemable non-controlling interest

562

517

Accrued severance pay

9,530

9,586

Total long-term liabilities

163,270

185,691

EQUITY

386,491

383,694

TOTAL LIABILITIES AND EQUITY

696,553

714,161

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands

For the three months ended March 31,

2021

2020

(unaudited)

(unaudited)

 

Cash flows from operating activities:

Net income

9,902

6,890

Reconciliation of net income to net cash provided by operating activities:

Depreciation and amortization

6,829

5,226

Accretion of discount on Series B Debentures

26

33

Stock-based compensation related to options issued to employees

1,399

622

Capital loss from sale of property and equipment

5

-

Net changes in operating assets and liabilities, net of amount acquired:

Trade receivables, net and unbilled receivables

(10,541)

(9,009)

Deferred tax assets, net

(1,913)

(1,257)

Other operating assets

6,116

2,260

Trade payables

609

(52)

Other operating liabilities

(7,774)

(759)

Deferred revenues

6,995

1,655

Accrued severance pay, net

102

150

Net cash provided by operating activities

11,755

5,759

Cash flows from investing activities:

Purchase of property and equipment

(821)

(552)

Investment in deposit

-

(665)

Proceeds from restricted deposit used for completed acquisition

-

22,890

Payments for business acquisitions, net of cash acquired

-

(22,061)

Proceeds from sale of property and equipment

154

-

Capitalized software development costs

(1,632)

(1,437)

Net cash used in investing activities

(2,299)

(1,825)

Cash flows from financing activities:

Proceeds from employee stock options exercised

413

600

Repayment of Series B Debenture

(19,796)

(9,898)

Receipt of short-term loan

-

20,000

Payment of contingent considerations

(537)

(538)

Dividend to non-controlling interest

(31)

-

Net cash provided by (used in) financing activities

(19,951)

10,164

Effect of exchange rate changes on cash and cash equivalents

118

(836)

Increase (decrease) in cash and cash equivalents

(10,377)

13,262

Cash and cash equivalents at the beginning of period

152,561

66,295

Cash and cash equivalents at the end of period

142,184

79,557

Debentures Covenants

As of March 31, 2021, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures, based on having achieved the following in its consolidated financial results:

Covenant 1

  • Target shareholders' equity (excluding minority interest): above $120 million.
  • Actual shareholders' equity (excluding minority interest) equal to $384 million.

Covenant 2

  • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Company's Series B Debentures) below 65%.
  • Actual ratio of net financial indebtedness to net capitalization equal to (22.55)%.

Covenant 3

  • Target ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is below 5.5.
  • Actual ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is equal to (0.92).

 

Cision View original content:http://www.prnewswire.com/news-releases/sapiens-reports-first-quarter-2021-financial-results-301283154.html

SOURCE Sapiens International Corporation



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